An Update on the Woodchip Debate. Update on the woodchip debate Summary The Export Control (Hardwood Wood Chip) Regulation 1995 is
serving no useful purpose. It is causing severe job loss in rural
Australia, adversely affecting our balance of trade and national
debt, actively discouraging value adding investment, and is contrary
to both Australia's conservation objectives and sound forest
management practices. The values of the forests are protected through the Deferred Forest
Areas. The woodchip ceiling has no effect on which forests are
available for logging or how they are logged. It is not, in any sense, "saving" trees or protecting the environment,
in fact, the reverse. Millions of tonnes of wood must be burned or
left to rot as a result of the export ceiling. For these reasons, the forest industries consider that the
Government has no alternative but to disallow it and either rely on
the woodchip regulations that operated up until December 1995 or
introduce a new regulation which effectively addresses all the
perceived concerns and deficiencies that exists in the current
Regulation. The reasoning behind the above conclusion is set out in the balance
of this paper. Australia has over 40m hectares of public native forests, about 60%
of the forested area which existed at the time of European
settlement. Most of the clearing has taken place in order to
establish our main farming and pastoral industries, although urban
development and mining have also resulted in some forest loss. The rate of clearing has tapered off very significantly in recent
years and the area of native forests is currently expanding as a
result of natural regeneration. Australia's native forests are, in most areas, very robust and
resilient having evolved through major disturbance, principally by
fire over thousands of years. If grazing and livestock are removed
from cleared areas, the forest will normally grow back
vigorously. About one third of Australia's native forests have been notionally
available for logging. However, in practice, as a result of a range of
exclusions and management requirements, the area actually
available has been much less, probably less than 20 percent. Under the current Deferred Forest Area (DFA) arrangements, the
areas available for logging are greatly restricted (to about 2.5% of
the publicly owned native forest in most States) and exclude any
areas of forest that might have high conservation value and be
required for a national reserve system in the future. All logged areas are regenerated and active regrowth forest is
quickly established. The Australian Native Forest Industry The Australian native forest industry provides between 55% and
60% of the gross value of forestry production in Australia
(ABARE). It employs thirty to forty thousand people directly and
many more indirectly (mostly located in rural communities). It is
the main economic activity in many country towns stretching down
the Eastern seaboard, in Tasmania and in South West Western
Australia. The total value of production is estimated at between
$1.5b and $2.0b. The sector provides about one third of Australian wood fibre
consumption, the balance being supplied by plantations (one third,
mostly softwoods) and imports (one third). Australian imports of
wood fibre have been steadily increasing and reached about $3b in
1994/95, rising from $2b in 1990/91. Over half of Australia's
wood fibre exports (worth about $1b per annum) are from the
native forest sector, principally hardwood
HREF="/faq/woodchips.html">woodchips. The bulk of
the woodchips go to Japan where they are processed into fine
paper. The highest unit value product from the forest are high quality
sawlogs (i.e. solid logs suitable to be converted into sawn timber)
and veneer logs. These, as well as lower value sawlogs all go to
domestic sawmills. However, there are very significant quantities
of even lower grade logs, forest residues, thinnings and sawmill
residues which are only suitable for use in chip form. In 1996, Australia will produce about 9.5 million tonnes of
woodchips and these will be utilised as follows:
- 1.5m tonnes -
for domestic panels and/or pulp and paper production by
companies such as CSR, Australian Paper, Kimberly Clark,
Carter Holt Harvey and Australian Newsprint Mills. - there are no other substantial markets for
woodchips in Australia
- 5m tonnes -
for export by companies such as
HREF="http://www.buildata.com.au/bunnings.htm">Bunnings,
HREF="http://www.north.com.au/report/wood.html">North Forest
Products, Boral, Midway Wood Products, Harris Daishowa
and Gunns Ltd. - 3m tonnes -
there will be a surplus of about 3m tonnes which can neither
be sold to the domestic market nor exported under the
existing Regulation. It is estimated that the 3m tonnes has a
potential FOB export value of about $240m and that
harvesting and processing of this material would be
worth several hundred jobs and provide economic
viability for rural communities in three
States. Role of the Domestic and Export Woodchip Industry The established woodchip industry is a vital component of the
overall native forest industry. The log value of the woodchip sector
is about $280m per year compared to about $260m for sawlogs,
plywood and veneer (ABARE). Without the revenue and royalties
from the residual wood, the economic viability of native forest
harvesting and the hardwood sawmilling industry would be, at best,
doubtful in many areas. Also, the sale of low quality wood is
essential to maintain forest thinning programs and other vital
aspects of the forest management regimen. Domestically, the short fibres available from hardwood species
such as the eucalypt are essential for most sectors of the Australian
pulp and paper industry, especially high quality writing, office and
copying papers but they are also used in such widely consumed
products such as tissues and newsprint. Woodchips are also used
domestically for the production of building materials such as
hardboard panels. The major market for woodchips is Japan. The Australian Bureau
of Agricultural and Resource Economics has estimated the value of
woodchip exports for 1995/96 at $547m in total forest product
exports of just on $1b. The FOB price for hardwood woodchips, at about $85 a tonne,
significantly exceeds the price that Australia receives for many
other major commodity exports, such as iron ore (around $25) or
coal (around $60). Role of Government The principal role of Government with respect to the forestry sector
is to determine the areas available for harvesting and to establish
and control codes of practice for logging, road building,
regeneration, etc. Once a tree has been felled and the royalty paid,
it is up to industry and market forces to determine whether it is sold
for sawlog, domestic woodchip, export woodchip or for some other
purpose. Governments should not regulate the end use of forest
products any more than they do for other industries. Woodchip export controls were initially introduced to try to try to
ensure that Australia received an acceptable price on the Japanese
market. At that time, Australia's share of the hardwood woodchip
trade was over 60% and it was argued that we had some monopoly
power. Since that time, our market share has fallen to below 30%
and the economic argument has lost any of the validity that it may
originally have had. Increasingly in recent years the Commonwealth has used the export
controls to introduce and enforce a range of conservation related
policies over and above those that have already been developed and
implemented by the States. However, with the establishment of DFAs, logging has been
removed from all areas that might be deemed to have sufficiently
high conservation status to require placing in the reserve system.
This arrangement will stay in place until final Regional Forest
Agreements (RFAs) are completed between the State and Federal
governments over the next one to three years.
Therefore, there is no longer a justification for a
quantitative ceiling on woodchip exports. Licenses could and should be based on the availability of wood
under the DFA agreements between the Commonwealth and the
State in order to enable effective and efficient processing and sale
of all of the wood that is legally available to the industry.
Attachment 1 gives a brief diagrammatic explanation of the DFA
process. In fact, the rescheduling of logging as part of the DFA/RFA process
has in many areas given rise to a higher proportion of residue
material being generated relative to higher value sawlogs. For
example, the compulsory shifting of harvesting from more mature
forests into regrowth areas with smaller logs has resulted in a
significant increase in the availability of woodchip material which
in most cases is not able to be sold on either the domestic or
(because of the Regulation) on the export market. Thus, the introduction of the Regulation by the previous
Government reduced the availability of export opportunities at a
time when the DFA/RFA policies were producing a significant rise
in the availability of export raw material. One of the woodchip export companies (Boral) appealed to the
Administrative Appeals Tribunal (AAT) against Minister Beddall's
decision to reduce its woodchip export volumes from 500,000
tonnes to 280,000 tonnes. The AAT concluded that the Company
should have been given 500,000 tonnes and that the Minister's
decision was flawed in almost every respect including having
adverse social consequences on local communities. A summary of
the AAT finding can be obtained from the
HREF="mailto:nafi@nafi.com.au">National Association of Forest
Industries. Additional Concerns Federal/State Relations The main aim of the 1995 Regulation was to put pressure on the
woodchip companies so that they might in turn force the State
government to co-operate with Federal plans for RFAs. In practice, the Regulation has meant loss of markets and the
putting of forest workers, contractors and small businesses out of
work. Putting aside questions of ethics and appropriate Government
conduct raised by such an approach, it is quite clear that the
Regulation is a failure, even in its own terms. The extent to which
the States will co-operate or not with the Commonwealth on RFAs
depends on the scientific integrity of the process and on the State's
assessment of investment prospects in the forest industry. Clearly,
the export Regulation is based on non scientific grounds (see AAT
findings) and has damaged investment prospects, worsened
regional economies, slowed down plantation establishment and, at
the same time, adversely affected national economic goals such as
improving the balance of payments. The States are all demonstrating a willingness to proceed with
RFAs as soon as possible in order to protect employment and to
encourage new investment. However, if the Regulation is not
disallowed, the participants in the RFA process will become so
embroiled in the legal and political issues surrounding woodchip
licenses and their impact on regional economies that much of the
momentum for the RFA process will be lost. The aim of the Woodchip Regulation was to be achieved by the use
of an economic `big stick' to force compliance of the States and
industry to Commonwealth policies. The pain from the "big stick"
is costing Australia the prospect of a cohesive and widely supported
forest policy. The figurative "carrot" of future jobs and investment
associated with expanding exports based on longer term outcomes
based on secure wood resources provides a much stronger attraction
for States to co-oporate in RFAs. Commercial Impact The Woodchip Export Regulation has caused a major loss of
confidence particularly among Australia's export customers in
Japan. Many of these are now seeking long-term agreements with
other suppliers, particularly in the United States, and this will lead
to a long-term loss of markets for Australia. A number of major domestic investment projects which involve
some woodchip exporting as part of an overall package are, at best,
stalled. The restrictions come at a particularly bad time as the downturn in
the Australian building market is putting a lot of financial pressure
on the logging and sawmill industries and there is a vital need to be
able to sell all residues from logging and sawmill operations at the
best possible price in order to stay commercially viable. The
Regulation is exacerbating the impacts of the cyclical downturn in
the sawmill industry, costing long-term markets and undermining
the confidence of customers. Environmental Impact As noted above, the Regulation is not required for
the protection of Australia's forests. Any areas that have been
identified as possible high conservation value have been
deferred and will not be logged until fully assessed under the
regional forest assessment process. The inability to export forest and sawmill residues, in fact, creates a
range of adverse environmental affects. Thinning programs aimed
at accelerating the production of sawlogs have been disrupted,
forest logging and regeneration programs have been made more
difficult and costly and large volumes of wood must be either
burned or left to rot. Socio Economic Impact Many of the regions and rural communities affected by the
Woodchip Export Regulations are already under considerable
economic pressure and social stress due to the rural downturn and
the uncertainty about the future of their forest industries. The
Regulation is further exacerbating uncertainty, loss of confidence,
loss of regular work and a wide range of negative social and
economic impacts. While policy makers may argue that this is temporary until RFAs
are completed, at a local level people feel confused, let down and
have lost much of their faith in the future as well as suffering
severe economic losses. Existing regulations prohibit the export of plantation grown wood
without a valid export license from the Federal Minister for
Resources. This provision is restricting plantation development in
Australia as it raises the spectre of sovereign risk, particularly in the
case of plantations on private land. Further, the Regulations with the arbitrary export ceiling limit are
prohibiting the export of wood cleared for bone fide plantation
establishment. Potential plantation growers on private land are
now faced with the option of either burning wood cleared during
plantation establishment or simply not proceeding with plantation
programmes. This (unintended) outcome of the ceiling is resulting
in Australia's plantation programme being significantly
restricted. If an export ceiling is to remain in any future Regulations, wood
cleared from areas that are not required for RFA/DFA purposes for
bone fide plantation establishment should not be subject to any
such ceiling restriction. Administrative Considerations The nature and frequency of the decisions the Government has to
take under the Regulation are guaranteed to disrupt relations
between the Commonwealth, the States and the industry and
generate the type of conflict the green activists and the media will
be able to use to keep the forestry debate at the forefront of policy
and political agendas. Under the Regulation, the Minister for Primary Industries will face
an endless series of decisions in relation to the quotas for each of
the States, for each of the companies and for each of the regions.
Also, ongoing legal proceedings in the AAT and Federal Court and
the consideration of technical license breaches by the Department
and the Minister will be a major preoccupation for the
administration of the Primary Industry and Energy and
Environment portfolios. Each decision point will be accompanied by major lobbying
campaigns from both the extreme greens and the industry and will
almost certainly generate conflict between Ministers and their
officers. This will tend to flow into the bureaucracy. If the Government is to work efficiently and effectively to achieve
RFAs with the States within a reasonable period of time, it cannot
afford to allow itself to be distracted into ongoing controversies
surrounding the Woodchip Export Regulation in the interim. Legal Issues The AAT decision referred to above has shown that the processes
under the Regulation are highly discriminatory, inequitable and anti
competitive. If the Regulation remains in place the Government
can anticipate devoting very significant resources to a wide range of
court proceedings initiated by firms, individuals and
communities. CONCLUSION Export Woodchip Regulations The National Association of Forest Industries recommend the
following course of action:
- The current Regulations should be withdrawn.
- Any new regulation that may be considered should:
- not constrain exports of woodchips from
sawmill waste, silvicultural thinnings or plantation
clearings; and
- it should not contain two stage licensing nor
retain annual licensing - or it will fail to achieve outcomes that protect markets
and jobs.
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